Sixth Street Specialty Lending - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered adjusted net investment income of $0.58 per share and GAAP net investment income of $0.62 per share; GAAP net income per share was $0.39. NII EPS beat S&P Global consensus ($0.62 vs $0.554), while total investment income modestly missed ($116.3MM vs $116.7MM). Management reaffirmed full-year adjusted ROE guidance of 11.5%–12.5% and highlighted quarterly earnings power of ~$0.50 per share absent spread impacts and additional nonaccruals.
• Board declared a Q2 2025 base dividend of $0.46 and a Q1 2025 supplemental dividend of $0.06; adjusted NAV per share was $16.98 after supplemental dividends. NAV declined to $17.04, driven by reversal of unrealized gains from paydowns/sales ($0.13/share) and widening credit spreads ($0.06/share).
• Portfolio churn remained elevated (LTM churn ~28%); activity-based fee income was the highest since Q4 2021, including a ~$0.05/share Arrowhead prepayment fee that boosted NII. Non-accruals were stable at 1.2% of fair value; first-lien exposure remained high at 92.9%.
• Balance sheet strengthened: $300MM notes due 2030 issued and swapped to floating (SOFR + ~153 bps), revolver amended and extended to 2030 with lower drawn spread/undrawn fee; weighted average interest rate on debt fell to 6.4% (from 7.0% in Q4).

What Went Well and What Went Wrong

What Went Well

• Strong NII performance and disciplined capital allocation: Adjusted NII $0.58 per share (GAAP $0.62), supported by elevated activity fees and lower interest expense as base rates declined. CEO: “we estimate that the quarterly earnings power of the business… is approximately $0.50 per share,” translating to ROE ~11.7%.
• Robust liquidity and liability management: Issued $300MM notes due 2030 and extended $1.525B of revolver commitments to March 2030 with improved pricing. CFO: “we swapped these fixed… notes to floating at a spread of SOFR plus 152.5 bps… [and] lowered the undrawn fee… weighted average maturity on our liabilities [is] 4.2 years”.
• Portfolio quality and non-sponsored origination: Non-accruals at 1.2% of fair value; 84% of new fundings originated outside the sponsor channel; weighted average spread on new commitments was 700 bps, materially wider than public BDC peers, supporting future returns.

What Went Wrong

• NAV per share decline: NAV fell to $17.04 (from $17.16) due to reversal of unrealized gains tied to realizations ($0.13/share) and widening credit spreads ($0.06/share) impacting fair value marks; adjusted NAV after supplemental dividend was $16.98.
• Investment income modestly below consensus: Total investment income of $116.3MM was slightly below S&P Global consensus, with management citing lower interest rates and lower dividend income versus Q4.
• Spread compression on new investments and macro headwinds: Weighted average yields declined slightly (12.5% → 12.3% at amortized cost), with management reiterating discipline amid tight spreads and cautioning that tariff- and deglobalization-related macro risks could pressure valuations and growth over time.

Transcript

Operator (participant)

Good day. Thank you for standing by. Welcome to the Sixth Street Specialty Lending first quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'll now hand the conference over to your first speaker today, Cami VanHorn, Head of Investor Relations. Please go ahead.

Cami VanHorn (Head of Investor Relations)

Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, we issued our earnings press release for the first quarter ended March 31, 2025, and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com.

The presentation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC. Sixth Street Specialty Lending's earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the first quarter ended March 31, 2025. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Joshua Easterly, Chief Executive Officer of Sixth Street Specialty Lending.

Joshua Easterly (CEO)

Good morning, everyone, and thank you for joining us. With me today are President Bo Stanley and our CFO, Ian Simmonds. For our call today, I will review our first quarter highlights and pass it over to Bo to discuss activity and the portfolio. Ian will review our financial performance in more detail, and I will conclude with final remarks before opening up the call to Q&A. In addition to today's earnings call and public filings, we also published a letter to our stakeholders. We may currently be in one of the most pivotal periods for the U.S. and global markets since the global financial crisis. We believe we're operating under a new world order, and it's our job as investors to embrace this reality and proactively position our business based on probabilistic assessments to navigate the evolving environment. We encourage and welcome your feedback.

While we recognize that the world has changed since March 31, we believe our business remains well protected on the asset side with limited direct exposure to tariffs and well positioned on the liability side. We already said a mouthful on these topics in our letter, so I'll limit my opening remarks today to briefly covering our first quarter results and framing how we think about the future earnings potential of our business. After the market closed yesterday, we reported first quarter adjusted net investment income of $0.58 per share, or an annualized return on equity of 13.5%, and adjusted net income of $0.36 per share, or an annualized return on equity of 8.3%. As presented in our financial statements, our Q1 net investment income and net income per share, inclusive of the unwind of non-cash accrued capital gains incentive fee expense, was $0.62 and $0.39 respectively.

Of the $0.22 per share difference between net investment income and net income, only $0.05 per share was credit-related. This was primarily mark downs on our existing non-accrual loans, and therefore there was no impact in net investment income. The remaining $0.17 per share was in two buckets. In the first bucket, which we characterize as geography-related, there was $0.11 per share of prior period unrealized gains that moved out of last quarter's net income and into this quarter's net investment income, primarily related to investment realizations. In the second bucket, characterized as market-related, there was $0.06 per share impact from widening credit spreads, which, assuming no credit losses, will be reversed as investments are paid off or reach maturity.

Looking ahead, we estimate that the quarterly earnings power of the business, assuming a base case of no additional non-accrual investments and no spread impact on investment valuations, is approximately $0.50 per share. This includes interest income generated by the in-the-ground portfolio today plus limited activity-based fee income. This translates to a return on equity of approximately 11.7% above the floor of the calendar year 2025 guidance we provided on our last earnings call of 11.5%-12.5%. Given increases in repayment activity, there's potential upside to that figure if activity-based fees return to our average prior to the start of the rate hiking cycle. We believe our asset quality today supports this forward earnings profile, which we anticipate will differentiate our returns from the public BDC sector for three important reasons. First, we've continued to be a very disciplined capital allocator.

Our portfolio yields are meaningfully higher than the sector average, with a weighted average yield and amortized cost of 12.5% in Q4 compared to 11.6% for our peers. We also have a significant small of our portfolio invested in loans with spreads below 550 basis points, which Bo will discuss later. We believe our disciplined approach will allow us to outperform as the sector experiences a more significant decline in portfolio yields. This leads to the second point, which is that our patience and discipline over the past several quarters, combined with increased repayment activity, have provided us with significant capacity to invest in what we expect to be a more interesting investment environment. As we have seen in the past, periods of heightened volatility often present the most attractive investment opportunities.

We are well positioned with the level of capital and significant amount of liquidity we have for the period ahead. Finally, we believe our returns will continue to be differentiated given our track record of lower credit losses relative to the sector. Yesterday, our board approved a base quarterly dividend of $0.46 per share to shareholders of record as of June 16th, payable on June 30th. Our board also declared a supplemental dividend of $0.06 per share relating to our Q1 earnings to shareholders of record as of May 30th, payable on June 20th. Our net asset value per share adjusted for the impact of the supplemental dividend that was declared yesterday is $16.98. We estimate that our spillover income per share is approximately $1.31. With that, I'll now pass it over to Bo to discuss his quarterly investment activity.

Bo Stanley (President)

Thanks, Josh. I'd like to start by sharing some perspectives on the market, beginning with a look at the underlying supply and demand dynamics that have shaped the current investment environment. Specifically, as it relates to the U.S. direct lending market and focusing on BDCs as a proxy for direct lending vehicles, the supply and demand dynamics over the past several years have been characterized by an imbalance of the supply of capital outpacing demand. This has largely been fueled by the growth of the retail investor-oriented perpetual non-traded BDC structure, which accounted for roughly 80% of asset growth within the BDC sector in 2024. This inflow of capital has exerted downward pressure on new investment spreads, leading to instances of suboptimal capital allocation.

We anticipate that the current uncertainty and volatility will moderate the supply and demand imbalance by slowing inflows into the non-traded vehicles and shifting the pendulum towards direct lending from the broadly syndicated loan market. While these factors may contribute to a more balanced supply and demand environment over time, we continue to believe that a meaningful resurgence in M&A activity remains a longer-term prospect. However, our through-the-cycle business model and diverse originations channel enable us to deploy capital into attractive investments across market cycles. In Q1, we provided total commitments of $154 million and total fundings of $137 million across six new portfolio companies and upsizes to four existing investments. We experienced $270 million of repayments from seven full and four partial investment realizations, resulting in $133 million of net repayment activity. As Josh highlighted, market dynamics have changed significantly since Q1.

That said, our new investments during the quarter underscore our firm commitment to remaining highly selective and disciplined in our capital allocation in all market environments. This is demonstrated in two ways, including lower levels of new investments funded during the quarter relative to our longer-term average and the percentage of our new investments that were thematically driven non-sponsored deals. On this first point, new investment spreads remained historically tight through the first quarter. We are an investor-first firm, which means we prioritize shareholder returns and will not put capital to work for the sake of growing assets. Second is our ability to originate opportunities in the non-sponsored channel, where we're able to differentiate our capital to earn an appropriate risk-adjusted return for our business. In Q1, 84% of new fundings were originated outside the sponsored channel.

This includes new investments in our retail ABL team, our energy portfolio, and an investment driven by long-standing relationships within the Sixth Street platform with a founder. I'll spend a moment highlighting our largest investment during the quarter, Bourque Logistics, which is a provider of logistics software and services for the rail and trucking industry. It is a founder-owned business where our direct-to-company relationship led to an investment opportunity. As agent and sole lender, Sixth Street structured a bespoke solution that enabled the company to execute on its growth initiatives. This flexible approach reflects our ability to meet specific needs of our borrower while ensuring we earn appropriate risk-adjusted return. On a blended basis across our securities, the weighted average yield and amortized cost for this investment was 13.9%. Our investment in Arrowhead Pharmaceuticals is another example of our differentiated investment capabilities.

As a reminder from our last earnings call, we expected to receive a prepayment fee in Q1 driven by the previously announced agreement with Sarepta Therapeutics. Arrowhead repaid a portion of the loan, and we received a prepayment fee, which contributed $0.05 per share to net investment income in Q1. This resulted in a reversal of a portion of the unrealized gain on the balance sheet of December 31, as the impact moved out of last quarter's net income into net investment income this quarter. From an overall perspective, 89% of total fundings this quarter were into new investments, with 11% supporting upsizes to existing portfolio companies. This quarter's fundings contributed to our diversified exposure to select industries, with six new investments across six different industries.

In terms of asset mix, we remained focused on investing at the top of the capital structure, with total first-lien exposure of 93% across the entire portfolio. As part of our new investment in Bourque Logistics, we structured the investment to include a first-lien term loan and senior secured notes, along with a small equity portion. All other new investments in Q1 were first-lien, consistent with our long-term approach. Moving on to repayment activity, Q1 was the second consecutive quarter of elevated churn related to the new-to-payoff period we experienced beginning in early 2022. LPM portfolio churn through Q1 was 28%, based on the beginning of period investment at fair value, which is the highest level in nine quarters.

The increase in repayment activity contributed to the highest level of activity-based fee income, excluding other income we've had since Q4 2021, totaling $0.16 per share in Q1 relative to our three-year historical average of $0.05 per share. The biggest driver of this increase in Q1 was the Arrowhead prepayment fee, as previously mentioned. Five of our six full payoffs were driven by refinancings. Of the five, four were refinanced by other direct lenders at spreads ranging from 450-550 basis points and did not present an appropriate return profile for our shareholders. The other was refinanced in the broadly syndicated loan market at a spread of 325 basis points. As we have reiterated, we will continue to pass on participating in deals where the economics do not align with where BDCs of any format sit on the cost curve.

To highlight the differentiated nature of our portfolio, only 5.4% of our portfolio by fair value is in senior secured loans with spreads below 550 basis points. Further, less than 1% of our portfolio by fair value carries a spread below 500 basis points. Outside of the five refinancings, we had one additional payoff in Q1, which was in our energy portfolio. In February, Mach Natural Resources repaid its outstanding term loan. After a hold period of 1.2 years, we received call protection on the payoff and generated an unlevered IRR and MLM of approximately 16% and 1.2x, respectively, for TSLX shareholders. Our dedicated energy team and expertise in this sector continue to be a differentiator for our business, demonstrated by our weighted average unlevered IRR and MLM on realized investments of 22% and 1.2x, respectively.

Moving on to our portfolio yields, our weighted average yield on debt and income-producing securities and amortized costs decreased slightly quarter-over-quarter from 12.5%-12.3%. The decline reflects approximately 15 basis points from the decline in reference rates and 5 basis points from the spread compression on new investments. The weighted average spread over reference rate of new investment commitments in Q1 was 700 basis points, which compares to the spread of 541 basis points on new-issued first-lien loans for the public BDC peers in Q4. Our ability to earn wider spreads is largely driven by 84% of our new fundings in Q1 falling into what we call our lane two and lane three buckets, characterized by non-sponsored originated investments. In Q1, this included our investments in Hudson Bay Company, Northwind Midstream, and Bourque Logistics. Moving on to our portfolio composition and key credit stats.

Across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attached and detached points of 0.5 times and 5.1 times, respectively. Their weighted average interest coverage remains constant at 2.1x. As of Q1 2025, the weighted average revenue and EBITDA of our portfolio companies was $383 million and $112 million, respectively. Median revenue and EBITDA was $139 million and $52 million. Finally, the performance rating of our portfolio continues to be strong, with a weighted average rating of 1.11 on a scale of 1-5, with 1 being the strongest. Non-accruals represent 1.2% of our portfolio fair value, with no new investments added to non-accrual status in Q1. Before passing it over to Ian, I'd like to address the potential impact of the recent tariff announcements on our portfolio companies.

While the situation continues to evolve and uncertainty across the broader economic landscape remains elevated, we believe there's limited direct risk from these tariff policies on our portfolio. The majority of our exposure is across software and services economies, which we believe will experience limited direct risks from these tariff policy shifts. While we maintain a small exposure to our energy sector, which we expect will have derivative impact, our commodity price exposure is typically hedged on the front end of the curve, mitigating short-term price volatility. To date, the back end of the curve has not moved materially. We believe the potential derivative impacts on the real economy, growth, and valuations are the bigger risk. However, these impacts are likely to take a number of quarters to flow through and hence are more difficult to quantify at this stage.

That being said, we feel good about where we sit in the capital structure of our borrowers at an average loan-to-value across our portfolio of 41%. To assess potential risk, we completed a comprehensive name-by-name tariff-related analysis of our entire portfolio. Excluding our retail ABL investments, this review identified three out of 115 portfolio companies that could be directly affected. These investments represent 2% of our overall portfolio by fair value, and based on our current understanding, we anticipate only a mild impact on their top line and EBITDA performance. Regarding our retail ABL portfolio, which comprises 3.4% of our portfolio at fair value at quarter end, we acknowledge the potential for the impact on these consumer and retail businesses through higher cost of goods, lower margins, and demand destruction.

However, our investment thesis on these companies remains intact, as it's predicated on the value of the underlying collateral, not the cash flow-related performance of the businesses themselves. We will continue to maintain close communications with management teams and sponsors during this period of heightened uncertainty to understand their strategies for navigating these potential headwinds. We will continue to monitor the situation closely but remain confident in our underwriting standards and asset selections. With that, I'd like to turn it over to my partner, Ian, to cover the financial performance in more detail.

Ian Simmonds (CFO)

Thank you, Bo. For Q1, we generated adjusted net investment income per share of $0.58 and adjusted net income per share of $0.36. Total investments were $3.4 billion, down slightly from $3.5 billion in the prior quarter as a result of net repayment activity.

Total principal debt outstanding at quarter end was $1.9 billion, and net assets were $1.6 billion, or $17.04 per share, prior to the impact of the supplemental dividend that was declared yesterday. Josh noted the strength of our balance sheet positioning earlier today, reflecting what has been a busy start to the year as we completed two capital market transactions during the first quarter. In February, we issued $300 million of long five-year notes at a spread of Treasuries plus 150 basis points, which at the time matched the tightest spread level for BDC in the five-year part of the curve. As we do with all our issuances, we swapped these fixed-rate notes to floating at a spread of SOFRR + 152.5 basis points.

While the execution level stands out in its own right, and particularly so in the face of widening BDC credit spreads that we have seen since mid-February, this issuance illustrates execution on our underlying philosophy of proactively managing our liquidity needs and our commitment to enhancing the depth of our investor base with each issuance. In March, we further enhanced our debt maturity profile by closing an amendment to our revolving credit facility. With the ongoing support of our bank group, we amended our $1.675 billion secured credit facility, including extending the final maturity of $1.525 billion of these commitments through March 2030. We are pleased with the outcome of this transaction as we successfully converted a legacy non-extending lender to extending status, marginally decreased the drawn spread through the introduction of a new pricing grid, and lowered the undrawn fee on the facility.

The combination of the February bond issuance and the closing of the amendment to our credit facility extended the weighted average maturity on our liabilities to 4.2 years, which compares to an average remaining life of investments funded by debt of approximately 2.3 years. This element is important to our asset liability matching principle of maintaining a weighted average duration on our liabilities that meaningfully exceeds the weighted average life of our assets funded by debt. Following both these transactions, we believe our balance sheet is in excellent shape. As of March 31, we had approximately $1 billion of unfunded revolver capacity against $175 million of unfunded portfolio company commitments eligible to be drawn. In terms of capital positioning, our ending debt to equity ratio from the balance sheet decreased quarter-over-quarter from 1.18 times to 1.15 times.

The decrease was driven by the elevated repayment activity experienced in Q1. Further, we have no near-term maturities, with our nearest maturity obligation not occurring until August 2026. As you may have seen through an 8-K filing in February, we entered an ATM program to expand our capital raising toolkit. We have not issued shares through the program to date and have no plans of doing so, with capital coming back to us through repayments. We believe the ATM program is beneficial for shareholders given the cost of issuing equity in this format is lower relative to the follow-on offerings we have done in the past. Consistent with our disciplined approach to raising equity capital, we will look to utilize the ATM program when we have confidence that the new shares issued will be accretive to net asset value and return on equity.

Pivoting to our presentation materials, slide 8 contains this quarter's NAV bridge, which Josh walked through earlier. Moving on to our operating results detail on slide 9, we generated $116.3 million of total investment income for the quarter compared to $123.7 million in the prior quarter. Interest and dividend income was $98.9 million, down from prior quarter, primarily driven by the decline in interest rates. Other fees, representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, were higher at $14 million compared to $5.1 million in Q4, driven by the Arrowhead prepayment fee, call protection, and accelerated amortization of OID on other investment realization. Other income was $3.5 million compared to $4.8 million in the prior quarter.

Net expenses, excluding the impact of the non-cash reversal related to unwind of capital gains incentive fees, were $60.7 million, down from $65.9 million in the prior quarter, primarily driven by the decline in base rates and a benefit from a lower weighted average cost of debt following the maturity of our 2024 notes in November and the subsequent issuance of our 2030 notes in February. This contributed to our weighted average interest rate on average debt outstanding decreasing approximately 60 basis points from 7% to 6.4%. Returning to our ROE metrics before handing it back to Josh, we're reaffirming our target return on equity on adjusted net investment income of 11.5%-12.5% for the full year, consistent with the assessment of our earnings potential outlined earlier on this call.

To the extent we see widening of credit spreads, we would expect some downward pressure on net income and potential diversion between net investment income and net income metrics, given that spread movement is incorporated into the discount rate we utilize in determining fair value of our investments each quarter. That impact would unwind as investments approach maturity or are repaid. With that, I'll turn it back to Josh for concluding remarks.

Joshua Easterly (CEO)

Thank you, Ian. I'll keep my conclusion brief today in hopes that people will take the time to read our letter, which is available on the investor resources section of the Sixth Street Specialty Lending website. In closing, I'd like to encourage our shareholders to participate and vote for our upcoming annual and special meetings on May 22.

Consistent with previous years, we're seeking shareholder approval to issue shares below net asset value effective for the upcoming 12 months. To be clear, to date, we have never issued shares below net asset value under prior shareholder authorization granted to us for each of the past eight years. We have no current plan to do so. We merely view this authorization as an important tool for value creation and financial flexibility in periods of market volatility. As evidenced by the last 11+ years since our initial public offering, our bar for raising equity is high.

We've only raised equity when trading above net asset value on a very disciplined basis, so we would only exercise the authorization to issue shares below net asset value if there were sufficient high-risk adjusted return opportunities that will ultimately be accretive to our shareholders through over-earning our cost of capital and any associated dilution. If anyone has questions on this topic, please don't hesitate to reach out to us. We have also provided a presentation which walks through the analysis in the investor resource section of our website. We hope you find the supplemental information helpful as a way of providing a clear rationale for providing the company with access to this important tool. With that, thank you for your time today. Operator, please open up the lines for questions.

Operator (participant)

Thank you. At this time, we'll conduct the question-and-answer session.

As a reminder to ask the question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question concerns line of Finian O'Shea of Wells Fargo. Your line is now open.

Finian O'Shea (Director)

Hey, everyone. Good morning. Josh, we enjoyed your shareholder letter and wanted to ask about the downward pressure on spreads with the ongoing non-traded BDC fundraising headwind. Can you talk about your resilience to that and how far it goes, just imagining that more capital is making its way into the complex, non-sponsor, so forth styled origination opportunities?

Joshua Easterly (CEO)

Yeah, it can. I would, I guess, let me start with saying I have no idea what retail flows are.

I would suspect, given the volatility in the market, that retail flows have slowed. Time will tell. I think that the data is dated, and I don't think there's good data post-Liberation Day. Also, as you know, with those vehicles, they're called semi-liquid for a reason, which is the promise of liquidity. In times of volatility, if the analog is non-traded retail sector, they've been a sucking sound of liquidity out of the system, not a net flow, but time will tell. That's one piece of it. The second piece of it is, look, we manage the way we built our businesses. We've managed a relatively small amount of capital for the opportunity set, and we have a big top of the funnel, including the non-sponsor and more complex transactions.

That has made our business more resilient to the spread tightening movement because we're just not purely in the sponsor business. We have been really disciplined allocators of capital, and I think we deeply understand where we sit in the cost curve and our cost of equity. We are not going to allocate capital just to allocate capital and to grow assets and therefore grow revenues. We believe that we have two basically important people in our ecosystem. First, being the capital providers who provided capital to us and entrusted that capital to earn a risk-adjusted return on capital and cost of equity. The second being our counterparty community, and we can't be a good lender and a good counterparty unless we have the capital. We need to do both well, and we plan to keep doing both well.

Finian O'Shea (Director)

Just to zero in, the top of the funnel, you haven't seen a material impact there from all the direct lending and private credit capital, which seems to be converging in style. Is there just less that meet the standards in terms of spread and structure, for example, even if it's something that would more traditionally fall into your wheelhouse?

Joshua Easterly (CEO)

Again, maybe we're saying the same thing. Maybe we're not. The top of the funnel, the very, very top of the funnel, has no impact. Now, we quickly might decide that is not for us. The top of the funnel was really, I think the impact on the top of the funnel is broad-based, which is the M&A cycle, which is obviously we've been very negative on that returning, and that is systematic across the industry.

Yeah, we decide more things are not for us early on. Because we have a big top of the funnel and other channels, we find places to put our shareholder capital in a responsible way that generates the required returns. That has been the business model. That business model has worked out. We also think we're going into a world where there will be more opportunity for complexity, and we're excited about that given the macro. I feel really confident on our ability to continue to earn returns across cycles. If you look at historically, we put this in the letter, and I don't think people get this, but we've actually done better in moments like this than we've done better in kind of regular way markets.

The market volatility has provided us an ability because how we manage our balance sheet and the top of the funnel and the culture of Sixth Street, we've been able to generate outsized returns. I think in volatile years, we generate almost 200 basis points of excess returns compared to non-volatile years, and our outperformance in the industry actually grows significantly. We could be more excited about the forward for our business, and that is from a design, how we've designed the business and how we put shareholders and capital on that list and as a priority and the capabilities we have given the market opportunity.

Finian O'Shea (Director)

When you say very negative on M&A returning, do you just mean a couple of quarters from what was supposed to be more like now, or do you think more protracted and anything you can unpack there for us?

Joshua Easterly (CEO)

Yeah.

Look, the industry has been beating the drum on M&A returning partly to justify, I think, the amount of capital they've raised, and we've been negative on that. The constraint is not the issue is not that there isn't dry power for private equity deals to get done. There's a ton of dry power. The problem is that people paid too much for assets between 2019 and 2022. And those assets, nobody wants to sell those assets without an acceptable return because it's not in their economic interest. People need time and growth. There is a headwind to growth, which we think will extend the time. Do I know do I think it's do I think there's going to be a whole bunch of non-investment-grade M&A in 2025? No. Do I think maybe in 2026? Possibly.

But the uncertainty in the macro and the drawdown on growth expectations is going to make non-investment M&A harder.

Finian O'Shea (Director)

Awesome. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Brian McKenna, of Citizens. Your line is now open.

Brian McKenna (Director of Equity Research)

Thanks. Good morning, everyone. Josh, you've been very clear the last several quarters about how the firm has been focused on finding attractive risk-reward opportunities and making sure you're getting paid the right economics for the risk you're taking. The environment has clearly shifted here, but I'm curious, how are your teams able to price risk when there's a meaningful pickup in uncertainty and volatility, and then there's clearly been a healthy reset in valuations here? Where are you seeing the most attractive deployment opportunities today?

Joshua Easterly (CEO)

Yeah. Hey, Brian. Good morning. I appreciate the question. It's a loaded question.

Look, I think the way we're able to price risk, by the way, I don't think the private market, at least what we're seeing today, are doing a very good job of pricing risk, which is somebody showed me a slide this morning that said middle market spreads haven't moved, but probably syndicated spreads have moved. I don't know where the data came from, but that feels pretty consistent. That seems like a technical issue in the middle market, which is previous flows. People need to put the previous flows to work. How we think about the world is we're deep fundamental investors. We look at where we sit on the cost curve, what's our required equity, the illiquidity premium that we need, which is I can't change my mind when I'm making an investment.

We look at what we think that asset is worth and loan to value on that asset, and whether we think that asset is worth in kind of a normalized interest rate environment and a normalized growth environment. Having kind of that deep fundamental view of the world and doing real work allows us to price risk in moments of volatility. In addition to that, Sixth Street is a big place. We have $100 billion of assets under management. We have large platforms in ABF, healthcare, sports media, telecom, energy, retail consumer, etc., etc., growth, etc., etc. We are able to see relative value. Not only are we able to see the top of the funnel and a lot of different things, but we are able to see relative value across asset classes and what people are pricing in for growth and what discount rates are using.

Brian McKenna (Director of Equity Research)

That's super helpful to keep a kind of steady head on our shoulder and be able to commit capital when other people don't. Okay. Great. That's helpful. You touched on this a little bit, but you look at TSLX and even the broader Sixth Street platform. I mean, you've really delivered impressive returns kind of through cycles looking back over your history. I think some of the market actually forget volatility is a great thing for your business. Can you just remind us again, why does TSLX and really the broader Sixth Street model work so well in all parts of the cycle? Why do periods of volatility ultimately drive value for all your stakeholders longer term?

Joshua Easterly (CEO)

Yeah. This is, by the way, I was shocked when we looked at it. I was in shock for us. I was shocked at the industry.

The industry has actually done a decent job, which is in moments of volatility, the industry returns are robust compared to in moments of non-volatility, which is they do not go down. I think they are basically flat at 20 basis points, which is I was a little bit shocking. That is structural in the sense that the capital is decently permanent, so they are not a forced sell. This is on the traded side. I think on the non-trade side, time will tell because there will be a liquidity pool. The structure of the industry, which is that they have permanent capital and they are not that levered, so they do not get closed out of their option, and the financing is robust, that they are able to withstand volatility. The industry itself and the capital structure of the industry and the permanency of the capital allows robustness.

I think TSLX, I think we actually have this idea of anti-fragility, which we actually do better when there's stress. I think that's because we've done a good job of allocating capital, which means that we have capital to allocate in moments of volatility. Not only are we not a forced seller, but we actually grow our investments during that time when the rest of the world is risk-off. That is a function of, A, being a good allocator of capital, and B, understanding that we need a reserve for unfunded commitments. We need a reserve for investment capacity during those times, both capital and liquidity. That allows us to actually be on the front of our feet, the balls of our feet during those times and really capture that opportunity. I was shocked at the industry.

I was shocked when I looked at the data for the industry, but it makes sense because the industry should be never a forced seller given the permanency of the capital. Again, the non-traded space will be interesting because there will be capital stop flowing, and there will be, my guess is, some type of liquidity pool and liquidity that happens, which is the analog being, again, the non-traded meat space. Capital came out of the system during that moment of volatility. Capital did not come in for people to be aggressive as opposed to investment opportunities outside their capital structure or inside their capital structure.

Brian McKenna (Director of Equity Research)

Appreciate it, Josh. I'll leave it there and congrats on the strong quarter. Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Mickey Schleien of Ladenburg. Your line is now open.

Mickey Schleien (Managing Director)

Yes. Good morning, everyone.

Josh, as usual, your prepared remarks were excellent and answered all of my top-down questions. I just have one modeling question. In the first row of slide nine, which is your interest and dividend income excluding fees, looks a little light relative to the 3% decline in the portfolio at cost and considering movements and spreads and so forth. That could be due to things like the cadence of investments or some sort of a reversal, or was there something else in there that we should be aware of?

Joshua Easterly (CEO)

I'll put that at the end, and we might have to come back to you. I do not, let us come back to you exactly on the, sorry. In 2000, and now it was 12/31, that quarter 2024, there was a large dividend income payment that was included that was not a non-recurring spread item. Right, Ian?

Ian Simmonds (CFO)

Yeah, that's right. That probably creates a little bit of noise.

Joshua Easterly (CEO)

That creates a noise. A better way for the analog to look at it is a little bit of spread compression, a little portfolio shrinkage compared to September 30, 2024. There was a one-time dividend payment related to an energy name, right, Ian?

Ian Simmonds (CFO)

Yeah, that's right.

Joshua Easterly (CEO)

Mickey, you almost had me.

Mickey Schleien (Managing Director)

Sorry?

Joshua Easterly (CEO)

You almost had me, but I think I got you the answer. There was a one-time dividend payment. What was that payment? Sizing in the quarter 12/31? We'll come back to you with the exact number, but there's a dividend payment, non-recurring dividend payment of $5.1 million in the prior quarter. Apples to apple, it's pretty consistent with a little bit of yield compression and the portfolio shrinkage.

If you look at interest and dividend income and you pro forma that 12/31/2024 line item of $113 million -$5 million, that would be more consistent with your modeling. Yeah. Dividend income went from $5.8 million in Q4 to $0.9 million in Q1.

Mickey Schleien (Managing Director)

Okay. I appreciate that. Thank you. That's it for me.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Kenneth Lee of RBC Capital Markets. Your line is now open.

Kenneth Lee (VP)

Hey, good morning, and thanks for taking my question. Just given the prepared remarks around some of the newer investments, including, I guess, one in the retail ABL side, could you further flesh out your outlook for lane two and lane three investments?

Would it be fair to say that you're starting to see a lot more of these opportunities materializing right now, or do we still have to wait a little bit more to see more stress across the sectors there? Thanks.

Joshua Easterly (CEO)

I think so. We've committed to one last quarter or this quarter that we'll fund here before year-end of size that we think is very interesting and is public. I think there will be needed a little bit more stress, a little bit more time, but we're excited. We're starting to see stuff. Obviously, the broader syndicated loan market is down. My guess is, if you look at the data, I think that Moody's have revised their LME kind of to stress, which is a distress signal, and the broader syndicated loan market up 2x, I think, or something like that.

I think those opportunities are coming our way.

Kenneth Lee (VP)

Great. Very helpful there. Just one follow-up, if I may, and this is just on the ATM equity program, and it sounds like the general approach towards any kind of potential capital raises is still very consistent with your previous approach. Just wondering whether you could be raising capital a little bit more frequently than in the past because I believe that TSLX had very infrequently raised capital in the past. We just wanted to see if the frequency could potentially change there. Thanks.

Joshua Easterly (CEO)

No change in how we raise capital, the frequency we raise capital, the lens we look through. I think Ian hit it perfectly, which is it has to be both accretive on an ROE basis as it relates to our cost of equity and an asset value basis.

It is, we're pretty, I would say we were pretty stubborn about the ATM, but it quite frankly is better for shareholders because the cost is lower. There is zero change in how we do it and zero lens, and it needs to only really make sense for shareholders. Ian, anything out there?

Ian Simmonds (CFO)

I think that's spot on. I think we were very deliberate about making the comment about no new shares issued this quarter because we didn't want people to assume that just because we have the tool, we would use it. It's more about making sure that we can be as effective as possible for shareholders.

Joshua Easterly (CEO)

I mean, let's put it this way. We let the balance sheet roll down, and therefore revenues to the manager get smaller because we don't think the opportunity set in this past quarter was good for our shareholders.

We're surely not going to issue new capital when we let an existing balance sheet roll down.

Kenneth Lee (VP)

Gotcha. That's very helpful there. Thanks again.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Sean-Paul Adams of B. Riley Securities. Your line is now open.

Sean-Paul Adams (Equity Research Analyst)

Hey, guys. Good morning. Obviously, your non-accruals are quite low. Credit quality-wise, you've been doing really well. Your letter made an excellent point on the deployment of capital to take advantage of non-standard opportunities during volatile periods. However, that's based on an assessment of not having any trouble at home. On the impact of risk ratings, have you guys seen any material migrations in internal risk ratings assigned within the portfolio?

Joshua Easterly (CEO)

No, not really. I would say the one thing we did not do, just FYI, do a great job in our letter.

I'll take the criticism for it. I'll give you a little bit more detail because I think you're asking a question about credit quality and at home. Let me hit tariffs real quick. We outlined exposure, direct exposure to tariffs in our letter, which is about 2%. The reality of it is that 60 basis points of that is already on non-accrual. That's American Achievement. There is another $4 million position that we think has limited impact. There is really only one name, which is 1.3%. That name is not very levered today. That name is less than five and a half times levered. 60% of its manufacturing is here in the U.S. It does source from overseas. We estimate that there might be a kind of 20% impact on EBITDA if things ultimately roll through and if they can't pass along costs.

That brings the credit to like six and a half times levered, which is still acceptable for that credit and the scale of that credit. I feel really good about the portfolio and our ability to play offense. You hit it exactly right. The insight's exactly right, which is for you to be able to play offense, not only do you need capital and liquidity, you need bandwidth, and the bandwidth means that you don't have any problems at home. We have capital. We have capital. We have liquidity. And we have bandwidth.

Sean-Paul Adams (Equity Research Analyst)

Got it. Thank you for the color. I appreciate it.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Maxwell Fritscher of Truist. Your line is now open.

Maxwell Fritscher (Equity Research Associate)

Hi, good morning. I'm on from Mark Hughes.

We've heard that banks are going a little more risk-off. Do you anticipate any impacts on the liability side of your balance sheet from this? Ian's comments on the facility and the note issuance suggest that answer is probably no, but any comments there?

Joshua Easterly (CEO)

No, I mean, I think the answer is no. We just got an amendment done and extension. We do that every 12-15 months. We effectively took one non-excited rate extender, tightened pricing a little bit, and then we opportunistically issued financing. If you would have asked us when we were going to do our next bond deal six months ago, we would have said in September. We did it early, so we pre-funded that maturity. We feel really, really good.

In addition to that, we have a lot of, in a downward-sloping rate environment, we have liability sensitivity, so we swapped out all of our liabilities. We should not have net interest margin compression, all things being equal in the environment going forward. We managed the balance sheet. Ian's done a great job. We managed his balance sheet. Ian and Christy, we've managed the balance sheet exactly in the right way. We're excited. Shout out to the team, to Ian and Christy on team.

Maxwell Fritscher (Equity Research Associate)

Thank you very much.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Melissa Wedel of JPMorgan. Your line is now open.

Melissa Wedel (VP)

Good morning. Thanks for taking my questions.

I wanted to follow up on a point that you, it was a brief point made in the shareholder letter, and it's really a bit more of a modeling question, but I think you referenced sort of making more space in terms of allowing more repayments rather than deploying capital so far in the second quarter. I want to make sure I was, one, understanding that right, and then two, just wanted to understand maybe the scale of that compared to some pretty sizable repayment activity in the last two reported quarters.

Joshua Easterly (CEO)

Yeah. Look, I would say my guess is we'll be at the end of Q2 somewhere between flat and slightly down. I don't think it impacts modeling. I think it's like balance sheet might be down $30 million-$40 million or something like that.

Repayment, look, we are going to, it's obviously part of the economics of the system is keeping financial leverage, which drives capital efficiency and interest income, etc. I think that's reflected in our guidance. I don't think it's a, I think it's on the margin.

Melissa Wedel (VP)

Okay. I appreciate that. To your point about volatility historically creating good opportunities to deploy capital and generate higher returns versus sort of regular way markets, we know that there tends to be a bit of a lag between what's happening in the broadly syndicated market and what's happening in sort of the private credit area. We've obviously seen a lot of spread volatility, but it's only been remarkably one month that we've really seen that. It sounds like you're not really seeing that volatility create more interesting opportunities in the private credit space quite yet.

Am I reading that right?

Joshua Easterly (CEO)

Yeah. What I would say is the great thing about our platform is we go hunt elsewhere. We will capture some of that spread. A, you're right. There's a technical thing happening in the private credit market. A, you're right about that. There's a lag. That's causing a lag. We don't need it to happen just in the private credit market because we've been able to capture it elsewhere. If you look at in these moments of time, we will go to more liquid markets to capture the spread volatility.

Melissa Wedel (VP)

Okay. Appreciate that color. Thanks, Josh.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Robert Dodd of Raymond James. Your line is now open.

Robert Dodd (Director)

Hi, everyone. Two questions. First, on the it really comes down to capital.

Spillover is now $1.31, right? I mean, from an ROE perspective with the excise tax friction, etc., and if you—isn't this the point in the cycle to your point that you might be down a little bit in Q2 or flat? Is this the point of the capital to the point of the cycle to shrink the capital base slightly, be accretive to ROE just on excise tax deduction alone potentially going forward? And maybe, as you say in the letter, there's not an infinite number of opportunities that are appropriate for BDCs. Again, is this kind of the point of the cycle where you want to be more selective? Shrinking the capital base and distributing some of that spillover might make sense?

Joshua Easterly (CEO)

Yeah. Look, we're not at that point, right? We're not at that point where we need to return capital.

That is obviously a lever. You save the excise tax, but remember to fund that distribution you're borrowing. The excise tax costs you 4% annually. The borrow costs you, on a marginal basis, 150 over so far. It is accretive on a leverage standpoint. It is dilutive on a NIM standpoint. We are not close to that point. We actually think having capital in times of volatility is good. It is effectively making you more capital efficient, but it is a negative R as it relates to the cost of the excise tax and your borrow to fund the excise tax.

On NIM, yes. Not on NII or capital ROE necessarily. Yeah. On NII.

Robert Dodd (Director)

Understood. Onto the second question. It goes to your letter.

I mean, one of the underlying themes in that letter seems to be, correct me if I'm wrong here, that you think globalization of trade may have peaked and been on a down cycle. Obviously, that is not something that happens usually for a couple of years. I mean, the increase, there's one of the charts in here. I mean, it was a multi-generational trend upwards in global trade as a percentage, which obviously made a ton of sense then to go into services businesses because anything that was physical as globalization was rising and offshoring was rising made sense to stay away from. If that is the core thesis in the letter and the outlook for Sixth Street, how does that change over the next not year or two, but the next 10 years, which is only really two iterations of owning an asset given the repayment cycles?

How does this view on global trade and essentially onshoring potentially change how you might allocate capital over a longer period of time, or does it just not make any difference?

Joshua Easterly (CEO)

No, look, I think that so look, most of our business is in services. I would say that the globalization started happening in 2010. There was a peak up in COVID, etc. If you look at there's two things to look at in that chart. One is the trend post-2010, which was declining, and then it picked up and then most recently declining. What I would say is the impacts were mostly in services businesses. The impacts, I think, are more the way I think about it is it probably slows velocity of capital, which will slow growth. It leads to it's inflationary, which will affect discount rates on assets.

The super cycle of return on equities, I think, and the value is going from and by the way, there are great private equity sponsors and great hedge fund managers and great equity managers that will pick up the idiosyncratic. The broad-based tailwinds to equities, I think, are changing, which is deglobalization. The way I think about it is it's inflationary. It will increase discount rates on assets and slow growth. What made for a very accommodative equity return environment, which is low discount rates and high growth, those conditions no longer exist. I think as it relates to our underwriting, you have to be clear-minded about yesterday's valuations and yesterday's LTVs are different. They're going to be different. Just run a DCF, cut your growth by half, increase your discount rate by two. It's going to come out with a different value.

That is where I think that where this generation of investors are going to have a little bit of challenge if they're going to look at yesterday's news, yesterday's comps, yesterday's multiples, and think those are a real thing. Guess what? The environment's changed.

Robert Dodd (Director)

To that point, would that mean you would expect even, I mean, this quarter, I think it was 11% sponsor-backed.

No, it was 11% follow-ons. It was 16%-15% sponsor-backed, I think.

Would you expect that? That's obviously significantly below your long-term average. Is that kind of, do you think, going to be more of the new norm going forward?

Joshua Easterly (CEO)

No. I mean, no. I mean, I think the sponsors are super smart. We love them. They're sophisticated users of capital. They're great investors, but they're sophisticated users of capital.

I think that tech people in the private credit space, which there's a lot of flows and a lot of money putting stuff, wanting to put money, needing to put money to work in that channel, had a shift this quarter. We love them, and we're going to be right there with them when they need capital and scale and size. We're going to go where there's the best risk-return. The tech people in the private credit market were not accommodated this quarter.

Robert Dodd (Director)

Yeah. I'll follow up with that one, honey. Thank you. Thank you so much.

Operator (participant)

Thank you. One moment for our next question. Next question. Our next question comes from the line of Paul Johnson of KBW. Your line is now open.

Paul Johnson (VP)

Yeah. Good morning. Thanks for taking my questions. Just one on credit, if I may.

IRG Sports + Entertainment, I believe that loan is maturing in this quarter. How is that company performing? We've obviously seen a lot of interest in professional sports facilities, but it was marked down just a little bit slightly in the quarter. Are you expecting to exit that?

Joshua Easterly (CEO)

Yeah. I mean, IRG is a name that we there's a whole bunch of assets that we're working to sell, including a significant I think it's 160 acres to look at. A little bit more. A little bit more and outside of West Palm Beach. That will work to resolve that.

Paul Johnson (VP)

Got it. Thank you for that.

Real quick on just on the cost of debt that you guys have, it was I believe it's down a little over 130 basis points or so over the last few quarters, which is a little bit more than what base rates have done over that time. Is there anything, I guess, that's benefiting the hedges or anything that's driving the cost of debt lower, I guess?

Joshua Easterly (CEO)

I'll take a shot at it, and I'll give it to you. One is mix, probably. The other one is hedges are hedges lag, maybe. One is mix, funny mix. The new price and the revolver wouldn't have an impact on the LTM period. It's probably a little bit of mix.

Ian Simmonds (CFO)

Yeah. I think, Paul, if you look at the last two quarters in particular, we had one maturity of an unsecured note.

That rolled off, and we funded that with the revolver drawdown. That was a positive benefit, lowering overall weighted average cost of debt. The new bond that was issued was only in the second half of February, so it does not have as much of an issue, but that was also lower spread. Lower spread.

Paul Johnson (VP)

Got it.

Ian Simmonds (CFO)

The effective base rates, do not forget 100% of that. Yeah.

Paul Johnson (VP)

Got it. Okay. Thanks for that. That is helpful. Excuse me. Last one, Josh, Ian, I would love to get your thoughts on a relatively new development in the BDC space, but structured risk transfers. Does that have any potential, I guess, to change funding costs at all within the BDC space? Do you see that as a positive development or just a signal of peak risk?

Joshua Easterly (CEO)

That is in the trade.

I saw this yesterday. I think you're referring to the SRT done from a group of some risk transfer from banks to the private credit market. Is that what you're—banks to the asset managers? Is that what you're referring to?

Paul Johnson (VP)

Yes.

Joshua Easterly (CEO)

Got it. I suspect it was done not for capacity issues, which is it allows banks to effectively get capital relief and expand more lending relationships. On the margin, I think it's helpful. I don't think it reduces pricing, but I do think it's helpful as it relates to expansion of capacity. The bank's model is balance sheet into the space and then hopefully drive fees. If they can put more balance sheet to the space from a capital relief trade, they get to get more fees and turn over that capital.

My guess is that on the margin, it expands capacity or it keeps capacity but does not do anything to pricing.

Paul Johnson (VP)

Thank you. That is all for me. Thank you.

Operator (participant)

Thank you. One moment for our next question. Again, as a reminder to ask the question, you will need to press star 11 on your telephone. Our next question comes from the line of Finian O'Shea of Wells Fargo. Your line is now open.

Finian O'Shea (Director)

Hey, everyone. Thanks for the follow-on. I just wanted to go back to the question on the ATM. I think, Bo, you said no changes whatsoever sort of to the historical approach, which has been something like every couple of years, something like 5% of NAV. Does that mean you will do that sort of same thing with perhaps an institutional direct, or will it be more of a dribble-out type ATM program? Thanks.

Joshua Easterly (CEO)

Hey, thanks, [audio distortion]. Sorry.

That was Josh. That's a very good nuanced question. I meant no changes philosophically or a framework of how we raise capital. The ATM does allow you to get capital just in time. Historically, what we've done, we've kind of actually pre-funded the assets out of the balance sheet. So people didn't fill the J-curve or drag, and then raise capital and got it kind of back and normalized. The ATM will give us the flexibility to dribble stuff out. We'll use that flexibility. But philosophically, we're not changing how we raise capital in the sense that we're going to raise capital only when it's accretive to NAV and where we think that capital will earn a return in excess of a return on equity. But will we does it give you more flexibility to do smaller-sized stuff and do just in time? Yes.

Versus what we have historically done is we've kind of taken the leverage up and then brought it back down, which I want to say is risky because we know where we're trading, but this is probably slightly more efficient in that way.

Ian Simmonds (CFO)

It is really a change in the execution, but the philosophy hasn't changed.

Joshua Easterly (CEO)

Yeah. It's a good way to put it.

Finian O'Shea (Director)

Really, when you see you've done it historically very judiciously and prudent, the dribble seems a bit more of an asset gallery approach, which I know you'd be against. Can you do it fast enough as you historically have when the deal flow is big?

Joshua Easterly (CEO)

Yeah. Your question is the right question. We're not saying we're exclusively using the ATM. What we're saying is it's a tool that is lower cost for shareholders to exercise.

There might be a time where we want to, there's an opportunity to grow the balance sheet step function, and we think it's really good. The ATM is not going to allow us to do that. Would we go to the public markets? Yes, 100%. It is just another tool. It is not an exclusive tool.

Finian O'Shea (Director)

Thanks for the color. That is all for me.

Operator (participant)

Thank you. I am showing no further questions at this time. I will now turn it back to Josh Easterly for closing remarks.

Joshua Easterly (CEO)

My hope was, I am kind of joking, and it is probably not going to land. My hope was that the letter would have made the question and answer sections shorter. It might have had the opposite impact. Shame on us and shame on me. I really appreciate all the good questions. Super thoughtful. We are excited about what lies ahead.

This is what makes our job interesting. Changing environments. Obviously, the environment keeps changing. And as lifelong learners, this is what we kind of get up every day to do, and the platform is here to execute. We hope people enjoy their summer. We hope we'll catch up with people after Q2, or if not sooner, please feel free to reach out. Thanks so much.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.